When it comes to return expectations, PPFAS MFs Rajeev Thakkar believes that there is a need for expectation reset. “I think a serious reset downward of return expectation is required in equities,” Thakkar said. He was speaking at a panel discussion at the Morningstar Direct’s Fund Manager Awards.
Thakkar further added that he often sees a stark contrast in equity allocation among investors. “Ironically, we have a large segment with very little allocation to equity, while some newer investors are extremely over-allocated. Somewhere in the middle is the golden area where people should have an appropriate balance between fixed income and equity,” he said.
On expected returns, Thakkar added, “People still talk about 18-20% returns, sometimes even 25%. Some believe in the 15-15-15 formula as if it is a law of physics. The nominal GDP growth rate is 12%, and many underestimate the competitive intensity introduced by easy capital, the internet, and the breaking of barriers."
ICICI Pru AMC’s Anish Tawakley added that equity returns come through sources - EPS growth and multiple expansion. “Multiple expansion cannot be endless. Ultimately, returns are tied to economic growth and competitive factors,” he said.
Tawakley also underscored the widespread belief in high returns. “It’s not just new investors, but even well-educated individuals from top institutions who talk about 20-30% returns as if they are the norm,” he said.
He, however, cautioned against excessive focus on valuation multiples. “If you stay invested for three years and get healthy earnings growth, then whether the multiple is 21 or 19, the difference in annualised returns will only be about 3%. Reasonable expectations will prevent severe disappointment.”
Edelweiss AMC’s Trideep Bhattacharya added that investors need to understand that in the current market, things were down but not out. “There is a delay, and an earnings slowdown, but nothing structural,” he said.
“Economic momentum takes time to recover, and earnings-cut-driven corrections require patience,” he added. In the coming days, Bhattacharya added, one must also be cautious of increased market volatility due to geopolitical developments.
“The way Trump talks about tariffs on different sectors can create significant noise in the operating environment over the next one or two years,” he said adding that popular thematic strategies may not work in such an environment, “as the pitch investors are betting on can change instantly due to geopolitical shifts.”
He instead advocated for a more disciplined investment approach. “The next two to three years will favour hard core bottom-up investing based on individual earnings dynamics rather than macro themes. Investors should focus on diversified, straightforward strategies rather than getting carried away by the latest market fads,” he said.
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